Current Affairs

It’s strange that politicians are there to tell you how brilliant they are during the boom years, but have excuses for all the other years that economies have struggled. But the boom years themselves are manufactured by those same politicians when they get into power. Millei of Argentina, has to a degree come to the conclusion that Argentina needs to start again, a year zero, not far different from the Khmer Rouge, where they believed that everyone needed to get back to the fields and those that weren’t compliant were killed.

OK, Millei hasn’t quite gone to that extreme, but he has taken away the underpinning of the economy and pushed the concrete infrastructure to an unknown and terrifying point of collapse. The elements that have been put in place are stripping the life out of the Argentines, and those that are creative are being given a blank canvas, which is a case of Thatcherism on steroids.

Millei believes in anarcho-economics, a type of year zero approach, which strips the government out of the economy and allows the state to free-fall without a parachute, which challenges even the Chicago school of economics that Chile experienced. It is even more extreme than anything put together by the Generals who destroyed the economy in the first place, but the question is whether the state and the people will be able to withstand the shock of what the state is trying to do.

The IMF has pumped $300 million into the Argentine economy, but will that be enough to give the people a cushion, Argentina’s economy is still at a point of contraction because Millei has promised to get inflation down in the most extreme way. But it is weird that he has spent the last two months insulting the biggest markets Argentina has. Argentina is an agrarian based economy, which not only has markets in Europe, China and South America, it also has one that is less important which is US, and Millei is arguing this is a core market.

Millei argues that he is the Trump of South America, a kind of revivalist argument that challenges even the most soporific of economists. The Trump government was wholly based on Keynsian economics, the Friedman idea was put on a back burner and massive investment was pushed into the economy by Janet Yelland. But the Friedman argument had never been central to US economics, (though an idea founded in Chicago), it does not have a home in US economics, though you will be hard-pressed not to find a Republican or Democrat who does not know the danger of Friedman to the US economy.

Argentina is unlucky, the source of all its woes is dependent on climate, and the downturns in the Argentine economy have taken place when there has been severe weather, which challenges Argentina’s ability to export its way out of a crisis. Millei argues that the inflation that is affecting Argentina is due to the weakness of the Peso, but that does not really explain the damage that successive Argentine governments have done to their economy.

The Chicago school of economics has been tried before in Argentina, and though initially it was successful, inflation soon reappeared. Argentina, is determined by three arguments, which always challenges the economy. But the biggest argument is debt, and debt hangs heavily over the Argentine economy, so much so that inflation always returns after the state runs out of tax revenue to meet its obligations, and there is a realisation that the economy still cannot generate the capital needed to keep the economy afloat, which would challenge any government.

So Millei is trying other approaches to generate business, there is his thirst for new industries, there is the thirst for conventional industries and there is the thirst for a banking sector to manage these new business’. The outcome could always be something different, but the argument is always’ the same, how is Argentina different to other markets, especially Brazil, which has oil, agriculture and high end industries.

Millei’s ambition is there, but the argument is that he is arguing with the rest of South America. Chile has found other arguments’ through development and pumping wealth into the economy in the first place to get the industry up and running. Paraguay, was exporting to Argentina to make up for the failure of Argentine agriculture to produce enough Soya beans to export last year. El Salvador has taken the mantle of a wholly new type of economy and has embraced digital currency, not as an alternative but running alongside its own, which has strengthened the economic outlook of its treasury, and other economies in South America are doing well.

Millei is an economist holding two degrees, but the idea of anarcho-capitalism did not really stop the young Millei from being a conventional banker with HSBC. HSBC have sold up their interests in Argentina to a private equity company, which is bad news for his push for an international banking market. HSBC left Argentina because they struggled to raise capital and found the market very difficult to do business in. But the concepts that were in place were already there and the difficulty of the Argentine market is wholly down to inflation.

MIllei argues that if he had $50 billion, he would turn the Argentine economy into a US dollar economy and that he would move away from the Peso. He believes Argentinians have dollars in reserve and this itself would make the economy more successful and manage the inflation that has so affected the state. This was tried previously when Argentina tried to peg the Peso to the Dollar, at first it worked, but because Argentina is ruled by issues that affected it politically, the pegging to the dollar went on to long and the peso collapsed into a spiral of hyper inflation.

There are other arguments and that was the nationalisation process that happened under Kirchner, so the freeing of the Argentine economy does not necessarily signify a significant difference to the way that Argentine politics will work. Companies coming into Argentina have to trust the market and if governments have different beliefs in how the Argentine economy works, then they will steer clear of the market after being burnt while building the infrastructure.

Argentina is a complex country which has tried everything, different arguments and different beliefs economically. This is not the first time that Argentina has had an economist that believes in fiscal policies that slash and burn the countries portfolios, but the base rate and hyper inflation is down to Argentina building massive debt that has to be serviced and to do this it has to borrow. Without the obvious arguments that took place in the 1990’s in Africa, where there was debt forgiveness, there is very little hope that inflation will once again return to single digits. As to the dollarisation of the economy, just look at Zimbabwe as a model and then decide whether you want that type of economy..